14 June 2010

Structural v. Cyclical Unemployment

Some unemployment is a result of the fact that certain industries slow down in recessions and speed up in economic booms. This is called "cyclical unemployment." An example is air transportation.

At other times, unemployment is due to jobs disappearing in one industry, e.g., print journalism, while they are being created in another industry, e.g., health care. This is called "structural unemployent." Recessions with a lot of structural unemployment can be thought of by their other name, "corrections" because they involve the economy rapidly redesigning itself to fit its new needs. Structural unemployment can be a deeper social problem, because those who lose jobs and those who get jobs have different skill sets; even though it structure unemployment can also change economies in ways that further long term economic growth, instead of simply representing the inherent bumpy nature of growth in capitalist economies.

Put another way, structural unemployment indicates a problem with the structure of the "real economy," while cyclical unemployment indicates a problem with an isolated key factor of production like investment capital or global oil prices.

By their measure, the percentage of unemployment that was structural "in the 1974–75 recession and the recessions of the early 1980s . . . was around 50 percent. That share increased to 57 percent for the 1990–91 recession and rose sharply to 79 percent for the 2001 recession." Their replication of results from prior recessions (based on prior research) found the 2001 recession to be 81% structural. Unemployment in the current Financial Crisis has been 65% structural.